Some recent publications and working papers that have otherwise gone undiscussed on this blog:

“Do Disasters Lead to Learning? Financial Policy Change in Local Government” by Deserai Crow, Elizabeth Albright, Todd Ely, Elizabeth Koebele, and Lydia Lawhon. Review of Policy Research.

“How does inequality aversion affect inequality and redistribution?” By Matthew Murray, Langchuan Peng, and Rudy Santore. Journal of Economic Inequality.

“Jurisdictional Overlap and the Size of the Local Public Workforce.” By Christopher B. Goodman. State and Local Government Review.

“Fiscal Succession: An Analysis of Special Assessment Financing in California.” By Matthew McCubbins and Ellen Seljan. Urban Affairs Review.

“Is There an Optimal Size for Local Governments? A Spatial Panel Data Model Approach.” By Miriam Hortas-Rico and Vicente Rios. GEN Working Paper.

“Land Value Taxation in Vancouver: Rent-Seeking and the Tax Revolt.” By Christopher England. The American Journal of Economics and Sociology.

“Power to the People? The Initiative Process and Fiscal Discipline in City Governments.” By Benedict Jimenez. Urban Affairs Review.

“Does Fiscal Decentralization Affect Infrastructure Quality? An Examination of U.S. States.” By Monica Escaleras and Peter T. Calcagno. Contemporary Economic Policy.

“Does CAP Spending Reflect Taxpayer Preferences? An Analysis of Expenditures for Public Goods and Income Redistribution in Relation to Preference Indicators.” By Felix Schlapfer and Ivo Baur. Conference Paper.

In next month’s Expert Systems with Applications, Nikolaos Goumagias (Northumbria University), Dimitrios Hristu-Varsakelis (University of Macedonia), and Yannis Assael (University of Oxford) have “Using Deep Q-Learning to Understand the Tax Evasion Behavior of Risk-Averse Firms.”

Deep Q(uality)-Learning is a form of artificial intelligence, where the AI agent lacks a model of the environment they are in, but uses machine learning to discover a optimal policy from trying to collect rewards from different actions. Or so I gather from this site showing a Deep-Q agent learn to play Doom. What they do in the paper is take a sample of Greek firms and attempt to figure out their degree of relative risk aversion in the Greek system. This is not a program designed to detect tax evasion, but rather evaluate tax policy in terms of tax revenue and evasion when confronted with new tax policies. You can think of this also as differing from similar normative public finance policy studies where utility and profit functions of agents are first defined and parameterized by the researcher. Here is the abstract from the Goumagias et al. paper:

Designing tax policies that are effective in curbing tax evasion and maximize state revenues requires a rigorous understanding of taxpayer behavior. This work explores the problem of determining the strategy a self-interested, risk-averse tax entity is expected to follow, as it “navigates” – in the context of a Markov Decision Process – a government-controlled tax environment that includes random audits, penalties and occasional tax amnesties. Although simplified versions of this problem have been previously explored, the mere assumption of risk-aversion (as opposed to risk-neutrality) raises the complexity of finding the optimal policy well beyond the reach of analytical techniques. Here, we obtain approximate solutions via a combination of Q-learning and recent advances in Deep Reinforcement Learning. By doing so, we (i) determine the tax evasion behavior expected of the taxpayer entity, (ii) calculate the degree of risk aversion of the “average” entity given empirical estimates of tax evasion, and (iii) evaluate sample tax policies, in terms of expected revenues. Our model can be useful as a testbed for “in-vitro” testing of tax policies, while our results lead to various policy recommendations.

I was also interested to discover from this that tax evasion is a popular applied subject for AI work, which makes sense considering it is a natural candidate for policy relevance. Here are some pieces I turned up, by title:

–Data Mining Application Issues in Fraudulent Tax Declaration Detection
–Tactical Exploration of Tax Compliance Decisions in Multi-Agent Based Simulation
–Tax non-compliance detection using co-evolution of tax evasion risk and audit likelihood
–Tax Evasion Behavior using Finite Automata: Experiments in Chili and Italy
–Detecting Corporate Tax Evasion Using a Hybrid Intelligent System: A Case Study of Iran
–The Computational Rules Extractor in the Detection of Tax Evasion
–Detecting Tax Evasion: A co-evolutionary approach

The July issue of Public Finance Review has been published. Below are the contents:

“Effects of Higher EITC Payments on Children’s Health, Quality of Home Environment, and Nonognitive Skills.” By Susan Averett and Yang Wang.

“Time to Adoption of Local Option Sales Taxes: An Examination of Texas Municipalities.” By Whitney Afonso.

“Retirement Reversals and Health Insurance: The Potential Impact of the Affordable Care Act.” By Joshua Congdon-Hohman.

“Tax Incentives and Noncompliance: Evidence from Swedish Micro Data.” By Annette Alstadsaeter and Martin Jacob.

“The Effect of Fiscal Illusion on Public Sector Financial Management: Evidence from Local Government Property Assessment.” By Justin M. Ross and Sian Mughan

“The Politics of Checkbook Federalism: Can Electoral Considerations Affect Federal-Provincial Transfers?” By Marcelin Joanis

“The Effect of Oil Revenue Funds on Social Welfare.” By Dina Azhgaliyeva

A little over a month ago, Georgia State’s Andrew Young School of Policy Studies hosted a conference on “Public Finance and the New Economy.” I was fortunate enough to attend, and can attest that it was an outstanding and stimulating event. The full conference agenda can be found here, and about nine of the dozen or so discussion papers can be found at the conference website. Here the available papers, noting that most of them indicate that they are circulated for discussion and feedback only, and should not yet be cited or quoted without permission:

New Roles for the Property Tax

LOSTs in Translation: Yardstick Competition among Florida Counties
Author: Sarah Larson, University of Central Florida; Bruce McDonald III, North Carolina State University

How Does Village Dissolution Affect Property Values?
Author: Pengju Zhang, Rutgers University

Debt and Finance

State Tax Cuts and Debt Market Outcomes: Lessons from the Kansas Tax Cut Experiment
Authors: Rahul Pathak, Baruch College, CUNY; Komla Dzigbede, SUNY at Binghamton

Impact of Intergovernmental Revenue on Capital Spending: A Test of the Flypaper Effect
Author: Bernard Boadu, University of North Texas

Expenditures: Direct and Indirect

Preferences and Place: Why Preferences for Funding Education Vary Across the Urban-Rural Divide
Author: Kattalina Berriochoa, University of Massachusetts, Boston

Do Local Governments Represent Voter Preferences? Evidence from the Affordable Care Act on Local Government Support for Hospitals
Author: Victoria Perez, Justin Ross and Kosali Simon, Indiana University

New Roles for the Property Tax

Driverless Cars, Virtual Offices and Their Effects on Local Government Property Tax Revenues
Authors: Nicholas Warner and Peter Bluestone, Georgia State University

The American Retail Sales Tax: Depression’s Child in the New Economy of the 21st Century
Author: John Mikesell, Indiana University

Richard Bird (University of Toronto) has a recent working paper on the question. The obvious answer is “no” and Professor Bird does not disagree. Nevertheless, he sees possibilities in existing international organizations that might provide the foundation for solving a coordination problems that might aid in dealing with a variety of cross-border flows that represent at least a large part of the problem.  Here is an excerpt I liked (p. 28, citations and footnotes omitted):

The existing international tax system is the product of pragmatic attempts beginning with the League of Nations almost a century ago to accommodate the varied ways in which commercial activities take place by modifying tax laws developed essentially for domestic purposes. Over time, a loose confederation of some key developed countries concerned with international tax issues emerged. The recent BEPS (Base Erosion Profit Shifting) discussions under the auspices of the OECD expanded this coalition to include some significant developing countries. Countries increasingly share financial and tax information through a plethora of Tax Information Exchange Agreements (TIEAs) and bilateral tax treaties, largely aiming at limiting the possibility that income can be hidden from interested tax authorities […] Those who want clean solutions to what they see as obvious problems – whether their ultimate concern is to ensure all international and domestic operations are taxed similarly or to redistribute the world’s wealth – are unlikely to view this messy and incomplete process or its (at best) half-baked result as satisfactory. Some degree of duplication, coordination costs, and at best only partial success almost inevitably results from decentralized decision-making structures, though perhaps in a world of conflicting interests and less than full information the outcome may be better – or at least more acceptable — than those of a more centralized structure.

The Journal of Public & Nonprofit Affairs announced at the Midwest Public Affairs Conference that the winner of Best Paper in JPNA for last year was “Research on the Effects of Limitations on Taxes and Expenditures” by Judith Stallmann (UM – Truman), Craig Maher (UNO – SPA), Steven Deller (UW-Madison), and Sungho Park* (UNO – SPA).

The paper is a history and literature review on Tax-Expenditure Limits in the United States. If you were asked to nominate a team of authors to write such a survey, you could hardly do better than this group. In addition to publishing often on the effects of TELs, Stallmann et al. have made it something of a career mission to produce ever improved measures of how stringent TELs actually are on governments so that researchers can do something other than dummy variables. This is an incredibly difficult task, as the authors lay out in extended detail. Consequently, they generally recommend readers take a caveat emptor approach to reading studies on the effects of TELs on a variety of government behavior.

The paper should very quickly become the go-to citation for authors of TEL research in order to get up to speed on the history and literature of TEL effects. For a related paper on competing theories for why voters may seek to constrain themselves through TELs, I would recommend Vigdor’s (2004) “Other People’s Taxes” in JLE.

*Sungho Park’s CV lists May 2018 for expected dissertation defense date with seven published peer reviewed articles in English journals since 2016.

I think it is fair to say that the Journal of Public Finance and Public Choice is a relatively unknown journal. The journal represented the efforts of its founding editor, Domenico da Empoli, to continue ensuring an outlet for those who pursued the study of public finance in the Italian tradition that came to be of such prominence in the late 19th and early 20th century (Puviani [1903] is still probably the go-to citation for history of thought in fiscal illusion research) and carried on by the likes of Jim Buchanan and Richard Wagner. If you haven’t already, you should read about the Italian tradition and its contrast with Walrasian/Pareto/Musgrave public finance in Wagner’s Fiscal Sociology and the Theory of Public Finance.

If you peruse old issues of the JPFPC you will see many familiar and well-known names that suggested it commanded some serious consideration and attention, but at some point the journal became somewhat erratic in its publication frequency and had a rather out-dated submission process for authors. In 2008, as a new assistant professor, I decided to send a paper written just prior to my dissertation that was on the subject of lobbying in state capitals. I had to physically mail two copies to the editorial office in Italy (in 2008!), and then received no notifications about its receipt or standing at any point over the next two years. In 2010, I got an email where I was told to expect to receive three copies of the journal issue the paper was printed in, and the journal itself was printed as part of the 2009 volume.

Well, it appears the journal is undergoing a relaunch with new caretakers, a new publisher, and a contemporary submission process. The editorial board includes the likes of Barry Weingast, James Alm, Richard Wagner, and John Wallis, among many others. Wagner has written an essay about the journal and its efforts to extend the Italian Tradition of Public Finance. Here is an excerpt from Wagner’s essay:

Like de Viti, Buchanan wanted to treat public finance as a field of scientific study and not as an administrative tool of practical statecraft. While these orientations are antipodal, they are not contradictory. It is possible for a theorist to pursue both orientations if he or she chooses to do so, only not at the same instant. An explanatory theory of public finance has as its object the explanation of fiscal phenomena as these emerge through interaction among interested persons, with those interactions occurring within some governing institutional framework. It seeks to explain the transnational logic that undergirds observed budgetary patterns.

Check out the JPFPC’s website here.

John Mikesell (Indiana University – SPEA) has a new paper on state revenue forecasting in Public Administration Review with “Often Wrong, Never Uncertain: Lessons from 40 Years of State Revenue Forecasting.” In the paper, Mikesell offers nine “lessons” (albeit I would describe them as “insights”) about state revenue forecasting that are derived from his time on the Indiana Revenue Forecasting Committee. As with all Mikesell papers the footnotes are “must reads.” Here is the abstract:

Experience in state revenue forecasting humbles and educates the public finance scholar and can inform the public administrator. It teaches the limits of econometrics, the importance of disaggregation, the significance of tax administrators, the utility of causal models, the issue of data problems, the need to understand tax structure, the importance of consensus forecasts, the terror of recessions, and the reality of being wrong. In the Indiana consensus system, experience provides greater respect for public servants seeking to make a sustainable fiscal system function and probably contributes to making the revenue forecast binding in the budget process.

From the May 2018 NBER series is “Taxes and Growth: New Narrative Evidence from Interwar Britain” by James Cloyne, Nicholas Dimsdale, Natacha Postel-Vinay.

This is part of something of a renaissance of historical research in economics, where careful historical work is used with an eye towards discovering clever identification strategies for causal estimation. It is always impressive when historical events can be used to learn something still relevant for contemporary policy (fiscal multipliers in this case), a task that is not as easy as it sounds. Unlike research on contemporary policy, it also possibly adds the advantage of offering a sense of detachment that can be harder to overcome when dealing with living political actors and stakeholders.  Here is the abstract:

 

See it here.

Research Articles:

“Raising the Stakes: Experimental Evidence on the Endogeneity of Taxpayer Mistakes.”  By Naomi Feldman, Jacob Goldin, and Tatiana Homonoff

“The Effect of Flat Tax Rates on Taxable Income: Evidence from the Illinois Rate Increase.” By Thomas Luke Spreen

“Perceptions and Realities of Average Tax Rates in the Federal Income Tax: Evidence from Michigan.” By Charles L. Ballard and Sanjay Gupta

“Assessing the Tax Benefits of Hybrid Arrangements — Evidence from the Luxembourg Leaks.” By Inga Hardeck and Patrick U. Wittenstein

“More Than They Realize: The Income of the Wealthy.” By Jenny Bourne, Eugene Steuerle, Brian Raub, Joseph Newcomb, and Ellen Steele.

Reflections of the Holland Medal Recipient:

“Perils of Tax Reform.” By James R. Hines, Jr.

Forum: Framing the Tax Base in Policy Discussions

“Is the Haig-Simons Standard Dead? The Uneasy Case for a Comprehensive Income Tax” By Jim Alm

“Too Clever by Half: The Politics and Optics of the Two-Part VAT.” By Alan D. Viard.